FF is a private limited company which sells flower arrangements for special occasions such as birthdays and anniversaries. This is a very competitive market. The business sells all of its products online. Customers use the FF website to choose the flowers they like and how they want them arranged. Once a customer has placed an order, a skilled employee will use job production to produce the flower arrangement. Employees are paid a commission based on the final selling price of the arrangements which they produce. The finished product is then delivered to any address within 50 kilometres of the FF premises. Most customers receive their order within 24 hours of placing it, apart from during busy times of the year. The directors of FF are concerned that the current product has reached maturity in the product life cycle. A suggestion has been made to produce low-price flower arrangements. There would be 10 different arrangements which would be made using batch production. These flower arrangements would be sold through local retailers. The Finance Director has suggested that the new venture may decrease FF's working capital, which is currently $18000. She has provided information from the statement of financial position (see Table 2.1). Table 2.1: Information from FF's statement of financial position | | $000 | |---|---| | Inventory | 11 | | Trade receivables | 20 | | Overdraft | 5 | | Trade payables | X | Half of the current workforce would be used to make the low-price flower arrangements. These employees would be paid using a time based payment method. The Human Resource Director has suggested that this may lead to poor employee motivation.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2019). The mark or mark type is shown in brackets.

1. A correct definition [2]
2. A partial, vague or unfocused definition [1]
3. No creditable content [0]
4. Content: A banking facility which allows a person/business to go below zero in their account. In essence, money has been lent to the person/business. The amount borrowed is controlled by the overdraft holder – they take what they need as they need it – usually a short-term source of finance
5. Award one mark for each element of a correct definition: ∞ Short term source of finance ∞ Often high rates of interest ∞ Flexible (can be used when needed) ∞ Allows an account to go below zero ∞ Helps solve cash-flow problems ∞ Current liability
6. Exemplar: A flexible (1) short term source of finance (1) [2] two elements
7. Exemplar: A business can take more money out of their bank account than they have in it (1) to help with cash flow problems (1) [2] two elements
8. Exemplar: A person can take more money out of their bank account than they have in it [1] Only one element
9. Exemplar: A flexible source of finance [1] Only one element
10. Exemplar: A source of finance [0] Does not distinguish an overdraft from other sources of finance
11. Exemplar: A loan from the bank [0] Again does not distinguish from a bank loan
12. Award one mark for each point of explanation: Rationale C Example or some other way of showing good understanding, i.e. point to start extension strategy, sales start to decline after maturity stage [1]
13. Rationale B Lack of growth, slow or no growth [1]
14. Rationale A Sales at highest point/maximum sales/product life cycle peaks [1]
15. Content: The maturity phase of the plc is when sales are at their highest and growth has slowed or stopped. Sales may start to decline after this. The diagram below could get all 3 marks as it shows sales peaking in the maturity stage, sales growth slowing, then declining.
16. ARA Exemplar: Sales are at their highest (A) but growth starts to slowdown (B) and is followed by the decline stage (C) [3] A+B+C
17. ARA Exemplar: Sales growth slows (B) and firms use extension strategies (C) [2] B+C
18. ARA Exemplar: Stage of maximum sales (A) and then the product enters the decline stage (C) [2] A + C
19. ARA Exemplar: Sales are at their highest (A) but stop growing (B) [2] A + B
20. ARA Exemplar: Point of peak sales (A) [1] A
21. Correct answer with or without correct working [2]
22. Formula or correct calculation of current assets [1]
23. No creditable content [0]
24. Content: Working capital = CA – CL
25. $18000 = (11000 + 20000) – (5000 + X)
26. Or (11 + 20) – (5 – X) = 8
27. Answer = $8000 (accept 8)
28. Common incorrect answers: 8000 [2] Correct answer even without $
29. 31 000 [1] Correct calculation of current assets
30. 31 [1] Correct calculation of CA without '000'
31. 31 000 – X = 1800 = 13 000 [1] Wrong answer but correct calculation of current assets
32. CA – CL [1] Formula
33. 13 000 [0] No working so not clear how arrived at this answer
34. Level 2b (APP + APP) Explanation of two disadvantages in context [4]
35. Level 2a (APP) Explanation of one disadvantage in context [3]
36. Level 1b (K + K) Identification of two disadvantages [2]
37. Level 1a (K) Identification of one disadvantage [1]
38. Level 0 No creditable content [0]
39. Content: ∞ Problems of paying short term debts ∞ Could FF afford to buy inventory – must be purchased in advanced and has a limited shelf life ∞ FF’s overdraft may start to increase and become a 'long-term' debt which is never paid off ∞ FF does not have any/many liquid assets – could get to the point where they may run out of cash and have to stop operations. For example unable to pay wages/salary – especially important because of the labour intensive nature of production ∞ Can be used as a measure of efficiency – shareholders may want the directors to explain why it is falling ∞ Decreasing the ability of FF to pay debts especially as customers are unlikely to pay for the flowers in advance and trade receivables may increase, again.
40. ARA Example: Identification of a disadvantage (K): Unable to pay short term debts. Explanation of a disadvantage: If working capital falls then there may not be enough money to pay short term debt. Explanation of a disadvantage in context (APP): such as suppliers of the flowers which have to be purchased in advance of a customer paying for the order
41. ARA Example: Identification of a disadvantage (K): Unable to pay employees. Explanation of a disadvantage: Employees may be paid weekly or in cash. Less working capital could mean the company cannot pay its employees. Explanation of a disadvantage in context (APP): CE's employees are paid a commission based on the selling price of the flowers. Lower working capital could mean that the company cannot pay the commissions owed to the employees
42. Level 2b Shows understanding of two elements of job production in context [4] Good analysis of one disadvantage and one advantage of using job production in context [4]
43. Level 2a Shows understanding of one element of job production in context [3] Good analysis of one disadvantage or one advantage of using job production in context [3]
44. Level 1b Shows knowledge of two elements of job production [2] Limited analysis of one disadvantage and one advantage of using job production [2]
45. Level 1a Shows knowledge of one element of job production [1] Limited analysis of one disadvantage or one advantage of using job production [1]
46. Level 0 No creditable content [0] [0]
47. Content: Elements of job production: ∞ Unique ∞ Hand made ∞ Made to order/bespoke ∞ One at a time ∞ Each is finished before the next is started ∞ Often labour intensive ∞ Requires skilled labour ∞ Satisficing customer – Allows FF to charge higher prices and retain loyal customers ∞ Premium prices – FF can charge a higher price for customised flower arrangements
48. Advantages: ∞ USP- already in a competitive market so specialist flower arrangements could give FF a USP ∞ Increased brand reputation– FF producing specialist flower arrangements which are ready in 24 hours which will be attractive to customers
49. Disadvantages: ∞ Lower productivity - increased costs of production/slower speed of production compared to batch production ∞ Labour intensive – higher labour costs ∞ Cost - Already got decreasing working capital, no cash and an overdraft job production is more expensive than batch ∞ Difficult future recruitment – higher level of skills needed because of the specialist nature of job production ∞ Training - job production is highly skilled and any new employees would require specialist training, increasing costs
50. NB annotate advantages on the LHS and disadvantages on the RHS
51. ARA Advantage Example: K: Made to customer order. APP: Flowers are arranged according to customer internet order. AN + DEV: Customer satisfaction (AN) if customers are satisfied with the product they will repeat order on other occasions which will increase customer loyalty, increase FF's revenue and lead to higher profit (DEV)
52. ARA Disadvantage Example: K: Expensive. APP: Job production means that each worker does a flower arrangement each time so the process is labour intensive. AN + DEV: leading to higher labour costs (AN). This will reduce FF's profits or could mean that they have to charge a high price and could reduce FF's competitiveness and market share (DEV)
53. Justified recommendation(s) based on argument in context [7]
54. Developed recommendation(s) based on argument in context [6]
55. An evaluative recommendation/statement based on argument in context [5]
56. Shows understanding of two non-financial motivators in context [4] Argument based on the use of two (or more) non-financial motivators in context [4]
57. Shows understanding of one non-financial motivator in context [3] Argument based on the use of one non-financial motivator in context [3]
58. Shows knowledge of two non-financial motivators [2] Limited analysis of the use of two (or more) non-financial motivators [2]
59. Shows knowledge of one non-financial motivator [1] Limited analysis of the use of one non-financial motivator [2]
60. Content: ∞ Training/development – as this is a lower skilled job, training is unlikely to be successful and may de-motivate if the skilled workers feel patronised by the new production process. ∞ Induction - Not about new workers, so the current workforce is unlikely to be motivated by induction. ∞ Opportunities for promotion – this may be a motivator is there are more supervision opportunities on the product production line ∞ Status - Will the workers who remain on the job production line fee superior to the others. This could have two effects – to motivate the job production workers and demotivate the batch production workers ∞ Job re-design – the workers could be involved in re-designing the new production process – this may motivate them and empower them ∞ Team working – The job production process was working alone, but there may be motivation from working as a group on batch production. Link to Herzberg, Maslow etc. ∞ Empowerment – workers may be given some control over their working practices. ∞ Participation – Could workers be given some input into the decision making at the firm? ∞ Fringe benefits/perks – Increased holidays, perks etc. may make up for reduced commission form the lower price flowers. ∞ Team away days - Allows team bonding which could help improve job satisfaction ∞ Job enrichment/job enlargement/job rotation – Increase skills/empowerment/interest
61. ARA Example (Team away day): K: Team away day. APP: The low-price flower arrangements will be produce using batch production. This requires team work. AN: So an away day could help with team bonding. DEV: This will increase loyalty to other members of the team. Employees will not want to let the team down so will work harder and less likely to take time off e.g. in sick days. Productivity will be higher and cost, therefore lower leading to higher profit. EVAL: Job rotation is more effective than a team away day (EVAL) because the employee can have better skills through higher training (EVAL) and won't disrupt the production or require time away from the job (EVAL)
62. ARA Example (Job rotation): K: Job rotation. APP: There are 10 flower arrangements to be made so employees could rotate between each arrangement. AN: Improving their skills. DEV: Higher level of skills will make employees feel better trained. If a worker is absent from one arrangement can easily be covered by other employees if demand is greater for that particular arrangement so less disruption to the production process. EVAL: (No explicit EVAL in this specific exemplar line, but it's implied by comparison in the previous EVAL)